Invest in a 1980 Lamborghini? There’s an App for That.

By

Nicholas Jasinski

Jan. 17, 2019 11:56 a.m. ET

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The 1980 Lamborghini Countach Turbo
Courtesy Photograph

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Soho in lower Manhattan is chock-full of upscale boutiques, art galleries, and Instagrammable cobblestone streets and cast-iron facades. One shiny new showroom sticks out from the rest. Located at 250 Lafayette, the brownstone-wide space is dominated by an aggressively styled, ruby-red sports car with scissor doors agape, almost scraping the ceiling. Signs around the space identify the vehicle as a 1980 Lamborghini Countach Turbo, and proclaim in all caps, “This car is an investment.”

Besides being beautiful to behold and fun to drive, rare automobiles have seen their value multiply over the years. Alas, not everyone can afford a vintage Lambo like the Countach.

But maybe you could afford 1/5,000th of one? Thanks to some technology, creative financing, and the power of the crowd, anyone with a dollar and a smartphone can now get a piece of a rare automotive asset. Rally Rd., which started in late 2017, is an app-based platform that allows investors to buy equity shares in collectible sports cars.

Christopher Bruno, Rally Rd.’s co-founder and CEO, spoke with Barron’s about the mechanics of securitizing shares in a vintage automobile, the promise of the asset class, and what features make a collectible sports car valuable. Bruno comes to Rally Rd. from work on early-stage deals at Massachusetts-based venture-capital firm Village Ventures and is a lifelong car guy.

Barron’s: What’s the vision behind Rally Rd.?

Chris Bruno: Two things were really important to us when we launched this platform. The first was that it would be available to absolutely everyone. So no commissions, no management fees, no prohibitive investment minimums. Literally, if you can afford a few bucks to buy one share we want you on our platform.

The other major thing that was important to us in launching this was liquidity. We didn’t want something that was just equity crowd-funding where you invest today and hopefully get back more money a few years later. We wanted a true marketplace that would allow for price discovery and liquidity for assets that traditionally have super high spread and are traditionally quite illiquid. So that was our mandate: to create a platform that was super user-friendly and beautiful and to make it happen in an asset class like collectible cars. There is that level of enthusiasm there that’s quite democratic but access to the market is highly asymmetrical. That was a problem we thought we could solve really effectively with financial technology.

How do you identify which models will be good investments?

We’re planning to hold several offerings a week in 2019 and have upwards of 100 cars on the platform by the end of the year. We’ve got a tremendous network that we’ve built in the collector community who are bringing us opportunities all the time. But we keep really high underwriting standards of what we’ll accept onto the platform in terms of originality, proper restoration, known history, original colors, and matching numbers of the engines and transmissions to the chassis that it comes with. Many of those things disqualify a lot of the opportunities that are brought to us right off the top. Beyond that, we have a list of assets that we’re coveting because we believe there is value and interest there.

And what’s the process of getting them ready to trade on the app?

The underwriting process takes two forms: In cases where we believe we can get something at below market value, we will take our own capital and buy it and then bring it to the platform at that value. The more common situation is that we have an individual who brings us an opportunity, and we have the exclusive option to present that opportunity to our investment community. We raise the money to acquire that asset by running an initial offering. After the initial offering closes, we lock up the stock for 90 days.

Then what happens?

Then we host one-day trading windows. Buyers and sellers of the security virtually get into the same room, and under a bid-ask paradigm reprice shares based on supply and demand. That also allows new investors to buy shares and for people who want to potentially sell sooner than the car is actually liquidated to get out at that point in time, like what happens on traditional equity markets. Right now, those happen about once every two months per asset, but as the community continues to grow, we see those happening more and more frequently and ultimately getting to a situation where it’s continuous trading.

What kind of volume do see during those trading windows?

There’s actually a lot more turnover than I expected, but the majority of people are long. In most of our trading windows, we see between about 5 to 20% of the float changing hands. We definitely see some people who are willing to change up their portfolio and move their capital over to a new opportunity, not just taking money off the platform.

How does the traditional collectible car market work?

The vast majority of transactions happen behind closed doors, I think about 70%. The public auction market is where you see the most, but that actually happens to be a relatively small piece of the overall pie of the dollars trading hands. And rightfully so. The amount of spread that you have in those markets is quite meaningful. So many people who are able to transact privately do so. In the dealer market, it’s a tightly controlled community with a small number of dealers. So definitely it’s a market where we think adding some additional participants to it is really important. And adding more seamless transactions gives us much better data—potentially even forward looking indicators of where makes and models will go based on the decisions people are making investing at the margin.

Companies’ stocks are generally valued based on their future cash flows. What goes into the valuation of a collectible car?

We do it mainly on appraisals and what’s happening in the comparables market—what people are willing to pay for something at any point in time. For Rally Rd., we wanted to start off not introducing too much complexity to the model. So our concept was to get professionals to value the cars appropriately so we’re putting fair market value out there when we list on the platform. In the future, I think the right way to do it is actually Dutch auctioning off every asset on the platform and letting our community determine what they’re willing to pay for a piece of that particular asset. We think that’s a much more effective way to ultimately derive value for what something’s worth at any point in time, based on a large group of people making that decision with real dollars. So as the community continues to develop, that’s something we’ll start to build into the way we value the asset at initial offerings, not just in the secondary market.

What are some specific characteristics of a collectible car that increase its value?

It’s the right color combination, the rarity, the story around that particular asset, the rationale for making that particular make and model. A lot of the most-coveted cars have connections to motor sports. Some of the rules for different types of race series were based on having to have a certain number of production cars out in the market. A lot of the value you see is based on having one of those race-bred cars that’s been made for the street. The originality of the asset has also become increasingly more important over time. Even cars that don’t look pristine but are original to what they were can command massive values, even over the most pristine restored cars. We factor all of that into the way we evaluate our assets when we bring them onto the platform.

Right. The Jerry premium is somewhere between 20% and 40% for just having touched him. We feel very fortunate to have that one on the platform and we think we bought it incredibly well.

How have these types of assets performed in the past?

Over the past 10 years, a bucket of premium collectible cars has seen between 300% and 500% appreciation. It tends to run a little bit counter to traditional equity markets in the sense that when people are finding great returns in traditional equities, they have less dollars allocated to things like collectible cars. But then when the opposite happens they definitely start to move back toward hard assets that have more stability. So the cars kind of waver between stores of value, and appreciating in value over our history of tracking this stuff. On Rally Rd., about 10 of our assets have traded so far. Some of them remained stable, while the one with the highest return rose over 20% in about six months. If you look in the app though most of them are up between 3% and 6%.

Where are the cars held?

We have two storage facilities right now, one in Pennsylvania and one in Connecticut. We’re working with a landlord in New York City to hopefully launch another storage facility in the city. The store is our spot in SoHo and the garage will be another space in the metropolitan area where we have a lot more of the cars. It can operate almost like a communal collection. Our goal is to, as quickly as possible, make everything that’s on the platform viewable to the investors and the community. That’s definitely a big piece of our model.

So they’ll be able to look, but can investors take their car for a spin?

Driving them is obviously something that everybody would love to do. But cars like these, the truth is that most of them would sit in a private collection somewhere hidden away, not to be shared with anybody. We’re dealing with cars that are 20, 30, 40 years old and have just a few hundred or few thousand miles on them. There are just certain assets that are meant to be driven, and some that are meant to be preserved for their originality. We’re definitely more focused on the latter because that tends to drive better returns. But we also want to make them visible and available to everybody.

Are you are you making any money right now? The trades are free.

We earn a small sourcing fee for putting together the transaction. That comes from the individual who’s selling the car asset. It’s typically a lot less than what they would pay through other channels by which they could get liquidity, and they’re able to keep equity in the cars and in many cases do. In the future, a subscription-type product, very Robinhood-esque, will be a piece of the platform which is how we intend to make money ourselves. We also try to operate the collection profitably. So through the sale of sponsorships and merchandise around the collection to drive revenues, not costs, out of keeping the collection in great condition. And we’ll split those profits with the investors in the cars in the form of a dividend.

What is Rally Rd.’s regulatory status?

We’re not a broker dealer or an investment advisor, but we are the issuer of the securities. We structure the transactions and each of the assets is operated as its own mini company that people invest in. We’ve done all the work to do this in a regulated manner with the SEC, where each of the offerings are qualified and transacted through registered broker-dealers.

Rally Rd. is VC-backed, who are your investors, how much have you raised, what’s Rally Rd.’s valuation?

Our two core investors are Social Leverage, which is Howard Lindzon’s fund,—they led our seed round—and our Series A was led by Greg Bettinelli at Upfront Ventures. We’ve raised about $10 million in total capital so far. We haven’t announced our valuation publicly yet.

What’s your favorite car on the platform?

That’s a tough one and the lawyers tell me I’m not supposed to pick favorites either.

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